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Last Updated: Friday, 15 April, 2005, 16:38 GMT 17:38 UK
Q&A: MG Rover's fight for survival
Rover showroom
Critics argue Rover lacks the scale to compete effectively
Redundancy notices are to be sent out to about 5,000 MG Rover workers this weekend, the firm's administrators have said.

The government has promised a 150m aid package for workers and suppliers, as a last-ditch rescue deal with Chinese car maker Shanghai Automotive Industry Corporation (SAIC) collapsed.

Is this the end of the road for MG Rover?

It certainly looks that way. China's SAIC confirmed on Friday that it would not be having any further talks with MG Rover. This deal had been seen as the best chance of saving the company.

PwC said on Friday that it would now be seeking to "mothball" Longbridge and sell parts of the company. It said it had received some offers for parts of the company but these offers were at an early stage.

Analysts see the MG sports car brand as perhaps the most valuable asset left.

What happens to the workers?

The news of the SAIC pull-out prompted PwC to say that it would be sending out redundancy notices to just under 5,000 MG Rover workers this weekend.

PwC said some 1,000 staff would remain in employment - at least for the meantime - to complete unfinished cars at the Longbridge plant.

Prime Minister Tony Blair announced late on Friday that the government would make a 150m aid package available for MG Rover workers and suppliers.

The T&G union described the news of the job cuts as devastating.

Apart from the 6,000 jobs at Longbridge, about 18,000 jobs in the area hinge on MG Rover.

Jobs have already gone at some MG Rover suppliers while other suppliers have already benefited from government pay outs. MG Rover is estimated to owe suppliers about 200m.

But wasn't MG Rover's future secured five years ago?

Sadly not.

In 2000 it seemed as if MG Rover had been given a new lease of life when former owner BMW sold it to a consortium of local businessmen - Phoenix Venture Holdings.

Under its new ownership, MG Rover made some progress, reducing its losses from 800m in 1999 to 77m in 2003.

But it remained a long way from its stated aim of becoming a profitable business.

The main reason for this was that it was not selling enough cars.

What's happening to sales?

MG Rover needed to sell about 180,000 cars a year to break even.

But sales have been falling. It sold 110,000 vehicles last year, down from 116,000 vehicles in 2003 and 145,000 the year before that.

At the moment Rover is like a spotty-faced kid - it is too big to be small and too small to be big
Professor Peter Cook, Nottingham Business School

The problem is, MG Rover does not have the financial muscle to compete in the fiercely competitive global car market.

Critics say its cars are merely facelifted versions of old models, essentially because it could not afford to develop and regularly launch new models.

For a while now, MG Rover has worked on plans to develop a new medium-sized car - which would cost about 300m - but that project wouldn't have been finished until the end of 2006.

"They have not invested anything like the money which is needed in new products," says Professor Peter Cook of Nottingham Business School.

He says Rover had an identity crisis and reckons the company would be better suited to operating as a niche car maker, producing about 50,000 vehicles a year.

"Rover is like a spotty-faced kid. It is too big to be small and too small to be big," he says.

With sales falling, Rover bosses have been criticised for awarding themselves large salaries and pension payments of about 13m, as well as transferring ownership of some MG Rover assets to Phoenix.

Executives, led by chairman John Towers, have long defended the payouts, arguing that leading executives had put their own money into Rover and saved it from extinction.

But why did Rover turn to China?

The car maker was trying to seal a deal with Shanghai Automotive, China's largest car firm, to establish a joint venture production company.

Rover cars leaving the Longbridge plant
Rover had hoped for a lift from Shanghai Automotive

This would have enabled Rover to launch a series of new models in Europe as well as expand its network of dealerships.

In return, the Chinese company would have gained a foothold in the European car market, access to research and development expertise plus the Rover and MG brand names.

But after months of talks about Shanghai Automotive investing between 200m and 1bn in the new venture, in return for a 75% stake in the business, all hope of a deal has evaporated.

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